Transcript: Press briefing Q&A with Federal Reserve Chairman Ben Bernanke – Sept. 18, 2013

Partial transcript of press briefing Q&A with Federal Reserve Chairman Ben Bernanke on Sept. 18, 2013:

Question:
…You cite progress in the labor market, both on the unemployment front and in terms of payroll growth. But much of the decline in unemployment rate has been due, as you know, to the decline in participation. So my question to you is – and also on the payroll front – some people would argue that while there has been growth, it hasn’t been strong enough to keep up with population growth and make up the gap that we have from the recession. So how high do you think the jobless rate would be if it were not for the decline in participation? I’ve heard estimates as high as 10% to 11%. And could you put the labor market in that context?

Federal Reserve Chairman Ben Bernanke:
Certainly. So I think there’s a cyclical component to participation and in that respect the unemployment rate understates the amount of sort of true unemployment, if you will, in the economy. But on the other hand, there’s also a downward trend in participation in our economy, which is arising from factors that have been going on for some time, including an aging population, lower participation by prime age males, fewer women in the labor force – other factors which aren’t really related to this recession.

Over the last year, the unemployment rate has dropped by 0.8%; the participation rate has dropped by 0.3%, which is pretty close to the trend. So in other words, I think it would be fair to say that most of the improvement in the unemployment rate – not all – but most of it in the last year is due to job creation rather than lower participation.

I would also note that if you look at the broader measures of unemployment that the BLS publishes, including part-time work, including discourage workers and so on, you’ll see that those rates have fallen about the same amount as the overall standard civilian unemployment rate.

So I think that there has been some progress and it’s obscured to some extent by the downward trend in participation. But I also would agree with you that the unemployment rate is, while perhaps the best single indicator of the state of the labor market, is not by itself a fully representative indicator.

Question:
…To what extent do you regard yourself as responsible for the timing and financial conditions that you noted. Was it a mistake to talk about tapering in the way that you did in June and do you stand by your guidance that it will be appropriate? Do you still expect that it will be appropriate to dial down asset purchases by the end of this year?

Federal Reserve Chairman Ben Bernanke:
So to answer the first part of your question, I think there’s no alternative in making monetary policy but to communicate as clearly as possible and that’s what we try to do.

As of June, we had made meaningful progress in labor market conditions, and the committee thought that was the time to begin talking about how the eventual wind-down of the program would take place and how it would be tied to the evolution of economic variables. And in particular, I talked about a proposed strategy that would take about a year for the total wind-down to take place and which in turn was also fully contingent on the ratification, so-to-speak, of our outlook which included continued improvements in the labor market.

So all of that was very consistent in what we said when we began the program that our goal was to achieve a substantial improvement in the outlook for the labor market and we need to communicate how that was going to be put into practice.

Failing to communicate that information would have risked creating a large divergence between market expectations, public expectations, and what the committee’s intentions were and that could have led to much more serious problems down the road. So I think the communication was very important.

The general framework…that which we’re operating is still the same. We have a three-part baseline projection, which involves increasing growth that’s picking up over time as fiscal drag is reduced, continuing gains in the labor market and inflation moving back towards objective…In the coming meetings, we’ll be looking to see if the data confirm that basic outlook. If it does, we’ll take a first step at some point, possibly later this year, and then continue so long as the data are consistent with that continued progress so that basic structure is still in place.

But what I emphasize is really two things. First, as I’ve said, asset purchases are not on a pre-set course. They are conditional on the data. They’ve always been conditional on the data. Secondly, even as we move from asset purchases to rate policies as the principle tool of monetary policy, it’s our intent to maintain a highly accommodative policy and to provide the support necessary for our economy to recover and to provide jobs for our citizens.

Question:
…You said that you could pull back the purchases possibly later this year. You sound less certain that it’s going to happen later this year, and so I’d like to ask you to talk a little bit more about your conviction about whether the pullback is likely to start this year. Where do you stand on that? I also don’t think I heard you mention that 7% unemployment number that you talked about back in June. That was the rate – the unemployment rate that was supposed to prevail when the fed was done doing this. Is that no longer operative?

Federal Reserve Chairman Ben Bernanke:
So there is no fixed calendar schedule. I really have to emphasize that. If the data confirm our basic outlook, if we gain more confidence in that outlook and we believe that the three-part test that I mentioned is indeed coming to pass, then we could move later this year. We could begin later this year. But even if we do that, the subsequent steps will be dependent on continued progress in the economy. So we are tied to the data. We don’t have a fixed calendar schedule, but we do have the same basic framework that I described in June.

The criterion for ending the asset purchase program is a substantial improvement in the outlook of the labor market. Last time, I gave 7% as a indicative number to give you some sense of where that might be. But as my first answer suggested, the unemployment rate is not necessarily a great measure in all circumstances of the state of the labor market overall. For example, just last month, the decline in unemployment rate came about more than entirely because of declining participation not because of increased jobs. So what we will be looking at is the overall labor market situation, including the unemployment rate but including other factors as well. But in particular, there’s not any magic number that we are shooting for. We are looking for overall improvement in the labor market.

Question:
…Have you indicated to President Obama that you did not want to serve a third term? If so, when? Or did President Obama indicate to you he did not want you to serve a third term? And those two parts notwithstanding, would you serve a third term if asked only or in part?

Federal Reserve Chairman Ben Bernanke:
Well, it’s convenient because I have the same to all three parts of your question. If you will indulge me just a little longer, I prefer not to talk about my plans at this point. I hope to have more information for you at some reasonably soon date but today I want to focus on monetary policy; I prefer not to talk about my own plans.

Question:
…You mentioned that tighter fiscal conditions are a concern for the committee as you guys think about whether or not it’s appropriate to reduce asset purchases. What do you all expect to be able to do in the future when you do begin to pull back in your asset purchases to manage expectations and manage the market reactions such that we don’t see another increase in rates?

Federal Reserve Chairman Ben Bernanke:
Well, what’s the relationship between the pullback and the fiscal policy?

Question:
I’m sorry. I meant financial conditions.

Federal Reserve Chairman Ben Bernanke:
Sure. I think part of the reaction we’ve seen – and it comes from a number of sources, part of it comes from improved economic news. That’s part of the reason why rates have gone up in other countries and as well as in the United States. To the extent that tighter financial conditions reflect a better outlook, that’s a good thing. That’s not a problem at all.

Part of it reflects our views on monetary policy and that we want to make sure we get straight. And that’s why to answer the earlier questions again it’s why communication is so important. We need to explain as best we can how we’re going to move and on what basis we’re going to move. It’s much more difficult today than it was 20 years ago because the tools are more complex and less familiar but that’s still very important.

I think the other factor which was at play was an unwinding of excessively risky and leveraged positions in the market and insufficiencies of liquidity in some cases meant that those unwindings led to larger reactions in prices and rates than might otherwise have occurred. And now the tightening associated with that is to some extent unwelcome, but on the other hand to the extent that some of the riskier more leveraged positions have been eliminated, I think that makes the situation more sustainable and reduces the risk that there would be a over-strong reaction to further announcements.

So we will do our best to communicate clearly. That is our goal and our objective. The more clearly we communicate, the better the chance that markets will understand our intentions and that we can avoid any sharp movements.

But again, we’re dealing with tools that are less familiar, harder to quantify and harder to communicate about than the traditional funds rate.

Question:
…The meeting committee members expected 2% interest rate by the end of 2016 and in the long-run they expect interest rates to return to 4%. Can you give us any sense of when you or when the committee expects interest rates to get back to that 4% figure?

Federal Reserve Chairman Ben Bernanke:
Let me first re-state, I think, the key point here, which is that the large majority of the participants of the FOMC – including the voting and non-voting members – who are asked to describe their own assessment of optimal policy, the large majority of them estimate that the appropriate target of the federal funds rate at the end of 2016 will be around 2% even though at that time, the economy should be close to full employment according to our best projections.

The reason for that – there may be several possible reasons but we did discuss this in the committee today. The primary reason for that low value is that we expect that a number of factors including the slow recovery of the housing sector, continued fiscal drag, perhaps continued effects from the financial crisis may still prove to be headwinds to the recovery. And even though we can achieve full employment, doing so will be done by using rates lower than sort of the long-run normal. So in other words, in economics terms, the equilibrium rate, the rate that achieves full employment looks like it’ll be lower for a time because of these headwinds that will be slowing aggregate demand growth. So that’s why we expect to see…rates at unusually low level.

I imagine it would take a few more years after that to get to the 4% level. I couldn’t be much more precise than that. I mean, we’re already obviously stretching the bounds of credibility to talk about specific projections in 2016. But I think you would expect to see the rates gradually rise within 2 or 3 years after 2016 and ultimately get to 4%.

Question:
…You indicated that you can see the fed lowering the pace of purchases once the economy starts to grow faster in line with what the feds projected. For about the past 4 years, the fed has been projecting that growth would quicken to about 3% and it never has. So at what point are you going to decide that other costs and benefits are the reason that you’re making the decision. Are we getting close to that having to be a deciding factor even if you don’t get the growth forecast the way you have in the past 4 years? Does the complication of this mean that you need a press conference to make a tapering decision?

Federal Reserve Chairman Ben Bernanke:
Well, you’re certainly right that we have been over optimistic about out-year growth. There are a number of reasons for that. One reason for it though is that it appears – and I talked about this in a speech last year – it appears as part of the aftermath of the financial crisis, at least temporarily the potential growth rate of the economy has slowed, perhaps because new businesses are not being formed at the same rate, innovation may not be translated into new technologies at the same rate, investment is slower, et cetera. So it appears again that the potential rate of growth of the economy has been slow somewhat at least temporarily by the recession and the financial crisis, and you can see that in the slowdown in productivity figures. Now, we haven’t anticipated that slowdown in productivity and that’s one of the main reasons why we haven’t anticipated the relatively slow growth.

Now, it’s important to recognize though that what monetary policy affects is not the potential rate of growth – long-run rate of growth – but rather the cyclical part – the deviation of output and employment from its normal level. And in predicting the amount of slack in the economy, so-to-speak, we’ve done a little better. Our predictions of unemployment, for example, have been better than our predictions of growth. And in particular, one thing has been quite striking is that unemployment – we were too pessimistic on unemployment this year. Unemployment has fallen faster than we anticipated. So in that respect, we were too pessimistic rather than too optimistic.

So, we’ll continue to do the best we can. We’re looking again to see confirmation of our broader scenario, which basically is we’ll continue to see progress in the labor market. The growth will be sufficient to support that progress and that inflation will move back towards target. And that’s what will determine our policy decisions.

In terms of press conferences, I think it’s important to say there’s an understanding of the committee that we’ve had for a while that there are 8 “real” meetings every year. Every meeting is a meeting in which any policy decision can be taken. And should anything occur at a meeting without a scheduled press conference that requires additional explanation, we certainly could arrange a public on-the-record conference call or some other way of answering the media’s questions.

Question:
…You said that the committee would be unlikely to raise federal fund rate if inflation remains below target, but your own projections have inflations at the mid-point of your inflation projection are below your 2% target through 2016. So is that inconsistent with the liftoff of the federal funds rate in that period? And related, is there a case to be made that your threshold should be supplemented with a lower-bound inflation rate, i.e. you won’t tighten if inflation is at or below some lower bound?

Federal Reserve Chairman Ben Bernanke:
So in the latter part, of course, you’re seeing interest rate projections and inflation separately. You’re not seeing them combined by individuals. Each individual is making their own projection.

I think you’re right that we should be very reluctant to raise rates if inflation remains persistently below target. That’s one of the reasons that I think we can be very patient in raising the federal funds rates as we have not seen an inflation pressure.

On having an inflation floor, that would be in addition to the guidance. We are discussing how we might clarify the guidance on the federal funds rate. That is certainly one possibility.

I guess an interesting question there is whether we need additional guidance on that given that we do have a target. And of course, implicit in our policy strategy is trying to reach that target for inflation. But that inflation floor is certainly something that could be a sensible modification or addition to the guidance.

Question:
…Many investors were expecting the fed to move at least in pulling back the bond buying program today. Given that you all decided not to do that, do you have any concerns that once again the fed is confusing investors and sending mixed signals?

Federal Reserve Chairman Ben Bernanke:
Well, I don’t recall stating that we would do any particular thing in this meeting. What we are going to do is the right thing for the economy. And our assessment of the data since June is that taken collectively, it didn’t quite meet the standard of satisfying or ratifying or confirming our basic outlook for again increasing growth, improving labor market, and inflation moving back towards target.

We try our best to communicate to markets. We’ll continue to do that but we can’t let market expectations dictate our policy actions. Our policy actions have to be determined by our best assessments of what’s needed for the economy.

Question:
…Are you concerned about a government shutdown? We’re hearing more about that possibility. Did that come up in your discussions at this meeting? What do you think would be the impact of a government shutdown on the economy? And would the fed be prepared to respond to that and help the economy additional accommodation, for example, the additional asset purchases?

Federal Reserve Chairman Ben Bernanke:
Well a fact that did concern us in our discussion was some upcoming fiscal policy decisions. I would include both the possibility of government shutdown but also the debt limit the debt limit issue. These are obviously, you know, part of a very complicated set of legislative decisions, strategies, battles, et cetera, which I won’t get into.

But it is the case, I think, that a government shutdown and perhaps even more so a failure to raise the debt limit could have very serious consequences for the financial markets and for the economy. And the Federal Reserve’s policy is to do whatever we can to keep the economy on course. So if these actions led the economy to slow, then we would have take that into account surely. So this is one of the risks that we are looking at as we think about policy.

That being said, you know, again our ability to offset these shocks is very limited, particularly a debt limit shock, and I think it’s extraordinarily important that Congress and the administration work together to find a way to make sure that the government is funded, public services are provided, that the government pays its bills and that we avoid any kind of event like 2011, which had – at least for a time – a noticeable adverse effect on confidence and on the economy.

Question:
…This week marks five years since the financial crisis began and Hank Paulsen who you worked very closely with has said his biggest regret was that he wasn’t able to convince the American people that what was done – the bank bailout – weren’t for Wall Street; they were for Main Street. What is your biggest regret as you reflect on the five-year anniversary? And do you believe that the Fed, Congress, and the President have put the necessary measures in place to prevent another deep financial crisis?

Federal Reserve Chairman Ben Bernanke:
Well, on regrets, as Frank Sinatra said, I have many. I think reasonably the biggest regret I have is that we didn’t forestall the crisis. I think once the crisis got going, it was extremely hard to prevent.

You know, I think we did what we could given the powers that we had, and I would agree with Hank that we were motivated entirely by the interests of the broader public, that our goal was to stabilize the financial system so that it would not bring the economy down, so that it would not create massive unemployment and economic hardship that would have been even more severe by many times than what we actually saw. So I agree with him on that.

Since you gave me the opportunity, I would mention that of course all the money that was used in those operations have been paid back with interests, and so it hasn’t been as costly from a fiscal point of view.

Now, in terms of progress, that’s a good question. I think we made a lot of progress. We had of course the Dodd-Frank law passed in 2010 and then we recently have come to an agreement internationally on a number of measures, including Basel III and other agreements relating to the shadow banking system and other aspects of the financial system.

I think today our large financial firms, for example, are better capitalized by far than they were certainly during the crisis and even before the crisis. Supervision is tougher. We do stress testing to make sure firms can withstand not only normal shocks but very, very large shocks similar to those faced in 2008.

And very importantly, of course, we now have a tool that we didn’t have in 2008, which would have made, I think, a significant difference if we had it, which is orderly liquidation authority that the Dodd-Frank bill gave the FDIC in collaboration with the Fed. Under the orderly liquidation authority, the FDIC with other agencies has the ability to wind down a failing financial firm in a way that minimizes the direct impact on the financial markets and on the economy.

Now, I should say I don’t want to overstate the case. I think there’s a lot more work to be done. In the case of resolution regimes, for example, the United States has set the course internationally. Other countries and international bodies like the FSB are setting up standards for resolution regimes which are very similar to those in the United States, which is going to make for better cooperation across borders. But we’re still some distance from being fully geared up to work with foreign counterparts to successfully wind down an international, multinational financial firm. We’ve made progress in that direction but we need to do more I think.

So I think there’s more to be done. There’s more to be done on derivatives, although a lot has been done to make them more transparent and to make the trading of derivatives safer. But it’s probably going to be some time before, you know, all of this stuff that’s been undertaken, all of these measures are fully implemented and we can assess the ultimate impact on the financial system.

Question:
…A number of economists and indeed some of your Fed colleagues have argued that the effectiveness of quantitative easing has greatly diminished, if not, disappeared, and they point to the recent performance of the economy as proof of that. And there have been a number of people who’ve argued there are regulatory and other impediments to growth beyond the reach of monetary policy. To what extent are these valid arguments and if the economy does not speed up, it does not reach your objectives, how will you ever get out of quantitative easing?

Federal Reserve Chairman Ben Bernanke:
Well, on the effectiveness of our asset purchases, it’s difficult to get a precise measure. There’s a large academic literature on this subject and they have a range of results. Some suggesting that this is a quite powerful tool, some that it is less powerful.

My own assessment is that it has been effective. If you look at the recovery, you see that some of the strongest sectors – leading sectors – like housing and auto have been intra-sensitive sectors and that these policies have been successful in strengthening financial conditions, lowering the interest rates, thereby promoting recovery. So I do think that they have been effective.

You mentioned that there hasn’t been any progress. There has been a lot of progress. As I said at the beginning, labor market indicators, while still not where we’d like them to be, are much better today than they were when we began this latest program a year ago. And importantly, as actually referenced in our FOMC statement, that happened notwithstanding a set of fiscal policies which the CBO said would cost between 1% and 1.5% of real growth and hundreds of thousands of jobs.

So the fact that we have maintained improvements in the labor market that are as good or better than the previous year notwithstanding this fiscal drag is some indication that there is at least a partial offset from monetary policy.

Now, as you say, there are a lot of things in the economy that monetary policy can’t address. They include the effectiveness of regulation. They include fiscal policy. They include developments in the private sector. We do what we can do. And if we can get help, we’re delighted to have help from all the policymakers and from the private sector. We hope that that will happen.

The criterion for ending asset purchases is not, you know, some very high rate of growth…Let me just remind you, the criterion is the substantial improvement in the outlook for the labor market. And we have made significant improvement. Ultimately, we will reach that level of substantial improvement and at that point, we will be able to wind down the asset purchases.

Again, and I think people don’t fully appreciate that we have two tools. We have asset purchases and we have rate policy and guidance about rates. It’s our view that the latter – the rate policy – is actually the stronger, more reliable tool. And when we get to the point where we are close enough to full employment that rate policy will be sufficient, I think that we will still be able to provide – even if asset purchases are reduced – we will still able to provide a highly accommodative monetary background that will allow the economy to continue to grow and move towards full employment.

Question:
…The Financial Stability Oversight Council has already designated two non-bank firms as [incomprehensible audio] as you know and potentially a third very soon, and presumably others to follow. However, little has been said in terms of how specifically these firms will be regulated by the Fed which has been a chief criticism of the entire process. Given that, can you provide us any guidance at this point in terms of how far along the Fed is in terms of letting the banks know how they will be regulated besides tailoring the plans.

Federal Reserve Chairman Ben Bernanke:
Well, the two firms that have been designated – AIG and GE Capital – actually are – have been regulated by the Fed because both of them are savings and loan bank holding companies. We have a lot of already experience with those firms and a lot of contact with those firms. We will – I want to use the word tailor because we want to design a regime that is appropriate for the business model of the particular firm.

But our other objective and what makes designation by the FSOC particularly noteworthy is that the primary goal of the consolidated supervision by the Fed is to make sure that the firm doesn’t in any way endanger the stability of the broad financial system. So we’ll be looking at not just the usual safety and soundness type matters or supervision, which both can be tailored to the types of assets and liabilities that the firm has, but also we’re going to want to focus on things like resolution authority, practices relating to derivatives and other exposures, interconnectedness, et cetera to make sure that the firm in its structure and in its operations doesn’t pose a threat to the wider system. And that’s what’s going to be distinctive about our oversight not only of these designated firms but also the large bank holding companies that we already oversee and which we are already subjecting to tougher supervision, higher capital stress tests, and all the rest.

Question:
…We don’t often get surprises from the Federal Reserve. This was a surprise. You talked about you hadn’t telegraphed anything specifically, but you’ve seen the market reaction I’m sure. My question for you is were you intending a surprise today and did you get the intended result judging from the market reaction? And related to that, by taking this action that continuing to bond purchases going forward, at what point do you believe you’re starting to complicate the exit strategy simply by continuing to keeping the Fed’s foot on the gas pedal? Do you make life more complicated for the Federal Reserve down the road?

Federal Reserve Chairman Ben Bernanke:
Well, it’s our intention to try to set policy as appropriate for the economy, as I said earlier. We are somewhat concerned. I won’t overstate it. But we do want to see the effects of higher interest rates on the economy, particularly mortgage rates on housing. So to the extent that our policy decisions today make conditions just a little easier, that’s desirable. We want to make sure the economy has adequate support. And in particular, it’s less surprising the market or easing policy as it is avoiding a tightening until we can be comfortable that the economy is in fact growing the way we want it to be growing.

This was a step – it was a precautionary step, if you will. It was an – the intention is to wait a bit longer and to try to get confirming evidence to whether or not the economy is conforming to this general outlook that we have.

I don’t think we are complicating anything or future FOMCs. It’s true that the assets that we’ve been buying add to the size of our balance sheet but we have developed a variety of tools and we think we have numerous tools that we can use to both manage interest rates and to ultimately unwind the balance sheet when the time comes.

So I feel quite comfortable that we can – in particular, that we can raise interest rates at the appropriate time even if the balance sheet remains large for an extended period. And that will be true of course for future FOMCs as well.

Question:
…Do you think that all the recent attention being paid to who will be your replacement has had any immediate effect on the Fed and could it have any lingering effect on your successor? And also, do you think the process has just become too politicized or is this part of a healthy debate?

Federal Reserve Chairman Ben Bernanke:
I think the Federal Reserve has strong institutional credibility and it is a strong institution, highly competent institution. And it’s independent, it’s non-partisan, and I’m not to be concerned about the political environment for the Federal Reserve. I think the Fed will be – continue to be an important institution in the United States and that it will maintain its independence going forward.

Question:
…Was there discussion among the committee today about changing the forward guidance to 6.5% jobless rate? And could you say why the committee decided to hold that steady in light of the weaker economy?

Federal Reserve Chairman Ben Bernanke:
Well, as I mentioned earlier, the committee has regularly reviewed the forward guidance, and there are a number of ways in which the forward guidance could be strengthened. For example…inflation floor – there are other steps we could take. We could provide more information about what happens after we get to 6.5% and those sort of things. And to the extent that we could provide precise guidance, I think that would be desirable.

Now, it’s very important that we not take any of these steps lightly, that we make sure we understand all the implications and that we are comfortable that it will be – that any modifications of the guidance will be credible to the market and to the public.

So we continue to think about options. There are a number of options that we have talked about. But as of today, we didn’t choose to make any changes to the guidance.

Question:
…As you may know, the Census Bureau reported yesterday that poverty rate and median household income saw no improvement last year. And wonder when you see median incomes turning up significantly for most people? And in light of the fact that people in the middle and the bottom have seen very little of the gains relative to higher income households, how would you assess both quantitative easing and Fed policies?

Federal Reserve Chairman Ben Bernanke:
Sure. So that’s – it’s certainly the case that there are too many people in poverty. There are lot of complex issues involved. There are complex measurement issues – I would just have to mention that. There are a lot of issues that are really long-term issues as well. For example, it might seem a puzzle that the U.S. economy gets richer and richer and yet there are more poor people, and the explanation, of course, is that our economy is becoming more unequal. More very rich people and more people in the lower half who are not doing well. There’s a lot of reasons behind this trend, which has been going on for decades, and economists disagree about the relative importance of things like technology and international trade and unionization and other factors that have contributed to that.

But I guess, my first point is that these long-run trends – it’s important to address these trends. But the Federal Reserve doesn’t really have the tools to address these long-run distributional trends. They can only be addressed really by Congress and by the administration, and it’s up to them to take those steps.

The Federal Reserve is – we are doing our part to help the median family, the median American because one of our principle goals – we have two principle goals. One is maximum employment – jobs. The best way to help families is to create employment opportunities. We’re still not satisfied obviously with where the labor market – the job market is. We’ll continue to try to provide support for that. And then the other goal is prices stability – low inflation, which of course also helps make the economy work better for people in the middle and the lower parts of the distribution.

So, we use the tools that we have. It would be better to have a mix of tools that work, not just monetary policy but fiscal policy and other policies as well. But the Federal Reserve, you know, we only have a certain set of tools and those are the ones that we use. Again, our objectives of creating jobs and making price stability I think are quite consistent with helping the average American but there are limits to what we can do about long-run trends and I think those are very important issues that Congress and the administration, you know, need to look at and decide what needs to be done there.

Question:
…Some emerging countries are blaming the Fed policies for the financial distress that they’re experiencing. I want to have your take on that. And also, how did you judge the way the markets reacted to your tapering announcement back in June?

Federal Reserve Chairman Ben Bernanke:
Well, let me just talk a little bit about communication in June. Let me talk just about the emerging markets, which I think is an important issue. Let me just first say that we have a lot of economists who spend all of their time looking at international aspects of monetary policy and we spend a lot of time looking at emerging markets. I spend a lot of time talking to my colleagues in emerging markets. So we’re watching that very carefully. The United States is part of a globally integrated economic and financial system and problems in emerging markets are in any country for that matter can affect the United States as well. And so, again, we are watching those developments very carefully.

It is true that changes in longer-term interest rates in the United States but also other advanced economies does have some effects on emerging markets, particularly those who are trying to peg their exchange rate and can lead to some capital in-flows or out-flows. But there are also other factors that affect in-flows and out-flows. Those include changes in risk preference by investors. Changes in growth expectations. Different perceptions of institutional strengths within emerging markets across different countries. So there are a lot of factors that are there playing a role, and that’s one reason why different emerging markets have different experiences. They have different institutional structures and different policies.

But just to come to the bottom line here, we think it’s very important that emerging markets grow and are prosperous. We pay close attention to what’s happening in those countries. It affects the United States.

The main point, I guess I would end with though, is that what we’re trying to do with our monetary policy here is I think my colleagues in the emerging markets recognize is trying to create a stronger U.S. economy and a stronger U.S. economy is one of the most important things that could happen to help the economies of emerging markets.

And again, I think my colleagues in many of the emerging markets appreciate that notwithstanding some of the effects that they may have felt that efforts to strengthen U.S. economy and other advanced economies in Europe and elsewhere ultimately re-downs the benefits of the global economy, including emerging markets as well.

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